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Analyst Blog

On May 22, 2014, we issued an updated research report on Ryder Systems Inc. (R - Analyst Report) – one of the largest integrated logistics and transportation solutions providers. The company posted mixed first-quarter 2014 results with the bottom line beating the Zacks Consensus Estimate and the top line meeting the same. The company’s growth trajectories hinge on strong demand in Full Service Lease business and strong performance in commercial rentals along with various maintenance initiatives.  

Growth in Fleet Management Solutions (FMS) will be driven by better customer acceptance for its on-demand maintenance product, which can be developed further by penetrating four bigger markets in a completely new way. Ryder is witnessing stronger sales activity and increased vehicle count for this new service offering. The projected tailwinds in FMS are also expected to be a result of favorable demand and pricing outlook in the Commercial Rental space.

Stronger fleet count from improved new sales, higher lease rates and improved CPI rate will drive Full Service Lease revenues, which is expected to grow 5% in 2014. Further, the Supply Chain business is expected to improve on strong new sales and rise in customer volumes. Supply Chain is projected to contribute 24–27 cents in 2014 earnings per share backed by 5% revenue growth.

Ryder sees immense prospects in rental demand that will likely lead to increased fleet utilization and price. The company is buying new lease vehicles to meet higher customer demand on lease renewals. Further, in 2014, Ryder plans to invest over $2.2 billion, the majority of which will be in rental and existing property.

However, within the Commercial rental business, challenges in the Canadian and U.K. markets could affect the company’s performance. In addition, the deferred maintenance activity and associated cost of about 3 cents per share are expected to affect the company’s earnings in the second quarter.

We anticipate the higher investment on fleet expansion and vehicle replacement to weigh down on the company’s financial position over the near term. Further, the company expects the tax rate to be a percent higher, which could affect its bottom line negatively by 8 cents in 2014.

Currently, Ryder carries a Zacks Rank #2 (Buy).

Key Picks from the Sector

Other well-placed stocks within the industry are GATX Corp. (GMT - Analyst Report), Trinity Industries Inc. (TRN - Snapshot Report) and Kansas City Southern Inc. (KSU - Analyst Report). GMT and TRN currently carry a Zacks Rank #1 (Strong Buy), while KSU holds the same rank as Ryder.

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